Vivendi SA, the French media conglomerate, is set to choose Germany rather than its homeland for the launch of a subscription video-on-demand (SVOD) service as part of a strategy to pre-empt Netflix in major European markets.
The company sees SVOD as an important strategic home entertainment market throughout Europe, according to Stefan Schulz, president of its Vivendi Mobile Entertainment (VME) subsidiary. VME, formed in early 2007, already has experience of subscription services through its portal zaOza, which allows downloads of games, music, and some TV series to PCS and smartphones.
The new scheme is more ambitious in scope, with Schulz quoted in the German Focus magazine as aiming to emulate Netflix by allowing subscribers unlimited streaming access to movies and repurposed TV programming across multiple consumer electronics devices, including TVs and tablets, for a single monthly price. The plan is to launch the service in Germany in the third or fourth quarter of 2012 and follow elsewhere in Europe.
Vivendi appears to have chosen Germany for the launch for several reasons. It is Europe's biggest TV market, and there are signs that people are overcoming their historic reluctance to pay for services if they provide high-quality content. At the same time, there is a window of opportunity, with Netflix unlikely to arrive in the country until 2013, while a plan by Germany’s two biggest commercial broadcasters' RTL and ProSiebenSat.1 to launch a Netflix-like platform themselves was blocked by the German anti-trust authority in March 2011.
The Germany federal cartel office Bundeskartellamt ruled that this would unacceptably strengthen the two groups' duopoly in the market for TV advertising.
As always, the biggest challenge facing Vivendi’s SVOD service will be content. The success of Netflix was founded on acquisition of rights to premium content from the major Studios at a time when OTT distribution was undervalued, and costs have ramped up enormously since. Netflix is now in a position to commit large sums to rights for movies and original series, but, so far, rivals such as Amazon have been less willing to match that level of investment. At the same time, the major content holders themselves have become wary of selling content rights to SVOD platforms at the risk of undercutting sales of more lucrative windows for transactional VOD and traditional pay-TV.
It is unclear at this stage how committed Vivendi is to blockbuster movie content, having last year sold its remaining 12-percent stake in NBC Universal.
On the other hand, Vivendi is well-placed in music through ownership of the Universal Music Group (UMG), and in video games through Activision Blizzard. UMG is hoping to strengthen its position in music content further by acquiring EMI for around €1.5 billion, although this is currently being examined by the European Commission competition authority. Either way, Vivendi has a strong proposition in music and games, which will be important components of emerging interactive and hybrid TV services. Vivendi also has a big stake in French content through ownership of the film distributor and producer Canal+ Group.
Another factor is that its balance sheet is healthy, with 2011 revenues of €28,813 million up 0.5 percent on the previous year, and net income up 9.4 percent at €2,952 million. The group is therefore well placed to be a big content player in Europe, with regulatory factors potentially a greater handicap than financial ones.